INTERNET: Meituan, JD Take Anti-Corruption Fight to Trenches

Bottom line: New anti-corruption moves at
JD.com and Meituan-Dianping show the cleanup campaign is moving
down to the grass-roots level, in a positive development that
should help the companies as many seek to go abroad.

Meituan, JD.com in new anti-corruption snares

Anyone unfamiliar with China might find it peculiar and even
worrisome that near simultaneous announcements appear to show
problematic internal corruption at two of the nation's top Internet
companies, e-commerce giant JD.com (Nasdaq: JD) and leading group
buying site Meituan-Dianping. While the timing
does seem somewhat coincidental, this kind of thing is becoming
quite common these days, as China's companies fall in behind the
central government's nearly 4-year-old anti-corruption
campaign.

From an observer's perspective, I have to say this kind of campaign
is sorely needed in China's corporate sector, both for state-run
and private companies. The kinds of internal corruption detailed in
these latest reports are far too common in companies, where
employees regularly use their position to do things like extort
money from and cheat customers, and even rip off their own
companies.

The broader picture is that China's corporate landscape is filled
with unsavory practices, much the way the west was in the early
industrial era before regulation and public outrage toned down and
stamped out many such problems. Such practices have been behind a
number of major scandals at China's biggest Internet companies over
the years, resulting in a major piracy lawsuit against leading
search engine Baidu (Nasdaq: BIDU) at one point and
sparking another piracy controversy against Alibaba (NYSE: BABA) more recently.

Those companies have begun to clean up their acts in response to
both public outrage and government pressure, and that appears to be
what's happening in these latest two cases involving JD and
Meituan-Dianping. In the first instance, JD.com has busted at least
6 people for various offenses, from accepting gifts to taking
advantage of their positions to make some extra money.
(Chinese article)

The latest bust appears to be the result of an ongoing company-wide
sweep, and affects a wide range of positions, from middle-managers
to ordinary workers, in a wide range of departments and geographic
locations. The media report points out that this is the second such
announcement by JD on the matter, again showing that this is an
ongoing effort to root out such practices that are endemic in
China's business culture.

Ditto for Meituan

Meituan-Dianping's announcement looks remarkably similar, saying
that at least 10 employees have been netted in an internal sweep
aimed at stamping out corrupt practices in the company.
(Chinese article) The bust was announced in an internal
company email, and again names a number of offenses by people at
all levels of the company in a wide range of different
departments.

The most significant thing about these latest two developments is
that they show the companies are really digging down to the grass
roots level to try and weed out corruption, no puns intended.
Telecoms equipment giant Huawei was one of the first major
private corporations to kick off the fight against internal
corruption in 2014, in line with President Xi Jinping's then
nascent campaign to root out the problem in government and big
state-owned companies. (previous post)

Since Huawei kicked off the private-sector clean-up, others
including Baidu and real estate services
provider SouFun (NYSE: SFUN) have joined the
effort. But most of those efforts in the first couple of years were
aimed at high-level executives, parroting the central government's
efforts that were emphasizing the more high-profile cases of
corruption.

Xi Jinping said at the start of his campaign that he was targeting
both "tigers and flies", though obviously the flies don't get much
media attention due to their low-level positions and smaller sums
of money involved. These latest cases show that the companies are
extending their own campaigns down into the "fly" level, sending a
signal that corruption of any kind won't be tolerated.

At the end of the day, this kind of campaign should be highly
beneficial to China's private companies, especially as many get set
to expand abroad and need to be careful not to export these kinds
of practices, especially to western markets. I do suspect that
corruption may still be continuing by some people who feel they are
immune to such crackdowns due to their good internal connections.
But as more of these crackdowns continue, such people will
hopefully give up such practices and focus on working for the
welfare of their employer rather than trying to enrich themselves
through their jobs.